Don’t Call it a Bubble…

Homebuilders had been locked in purgatory for more than five years. They overbuilt (massive understatement there, I know) during boom times. When demand fell off a cliff, they were forced to sit around and lick their wounds.

So they waited. Some even strategically bought land at a deep discount. And when homebuilders looked to be bottoming in late 2011, I turned bullish. The decision sparked a lot of hate mail. There’s no new housing boom… The bottom’s going to fall out again… How could I be so stupid?

Except it wasn’t a boom I was looking for—just a reversion to somewhat stable conditions. It’s supply and demand, knuckleheads. Way too much supply in 2005-2008. Prices dropped through the floor. You know the story.

Now, you’re seeing what happens when building grinds to a halt for more than a half decade. Inventories are hitting lows not seen since the last century. Prices are up. Homes are selling faster. There just aren’t enough decent properties to go around. Rates remain ridiculously low. It’s a recipe for a rebound.

“Across the country, the raw number of homes for sale is at its lowest level since 1999,” according to the New York Times. “Investors large and small have also scooped up most of the backlog of foreclosures and short sales…”

Of course, rising home values means rising wealth. Homeowners that had been underwater are now able to come up for air. That can do wonders for the moods of consumers and investors—which have been intensely negative during this secular bear market. If your home isn’t sucking your net worth dry, you’re more likely to spend and invest.

Keep in mind, this is a recovery— a mean reversion. It’s not a boom or a bubble. You won’t see massive year-over-year price increases and the hysteria that was so common just seven or eight years ago.

Of course, no one bothered to tell that to the financial media hype machine:

Jeez…really?

Now is not the time for wild speculation on real estate.

Play homebuilders and related sectors instead. Many are relatively cheap and just starting to get their balance sheets back in order.

Sorry, it is a cash buyer bubble. It is unsustainable. There are so many places for rent in some cities that it is a joke. And rents must come down for those cities. And even in an affluent city, La Quinta, where I was visiting the other day, prices have inflated so fast that there is a lull in buying.

waffenss

Lies, damned lies and statistics.

Expat

It’s like the stock market. It is meaningless, just numbers and statistics unlinked to reality. The national housing market depends on employment and incomes. Median house prices are still far above long term levels. So, talk all you want about builders and inventory (conveniently ignoring REO and underwater), the market depends on what people can afford.

If the Fed and the Federal Government simply continue propping up the banks and papering over the real estate market for decades, then I accept that we are at a bottom. But then let’s change our references from free markets to outright fascism. But, hey! Great! Fuck the buyers (young couples and families who can afford 130-140K median price) and make sure the hedge funds and banks get rich!

eab_Austin

If the investors large and small are renting out those properties they bought in disproportionate amounts, then they are betting on sustained increases – which means they are betting on sustained low rates. With super low rates and the Fed still buying up all of the bad collateralized debt (two conditions which cannot be sustained), the had better turn faster still. The “wealth effect” home owners are hoping for is based on government funding. Notice that rents are down right now. The investors are betting a large recovery which I just do not see occurring.

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